Opportunities in emerging markets
Are emerging markets vulnerable to US and developed world central bank policy, or are they backed by sufficiently powerful secular forces to suggest that the benign environment of 2016 may just be the start of a longer-term positive trend, underpinned by strengthening commodity prices and stabilizing global growth?
We believe recovering economic growth and robust income generation of certain emerging markets could give rise to some interesting investment opportunities. In particular, we believe the rising working-age populations and income levels across many EMs could drive spending over several sectors.
Low yields have presented a significant challenge to investors for a number of years. Outside the US, global growth and inflation expectations remain stuck at low levels and a large number of benchmark government bond yields remain in only slightly positive territory.
The low yield backdrop certainly presents all investors with challenges. But even in this environment, there is still a broad range of investment solutions that mean investors’ experiences do not have to be negative – even if some government bond yields still are.
Navigating disruptive markets
For much of the seven years following the financial crisis, risk-adjusted returns across asset classes were exceptionally high in a long-term historical context. Accommodative monetary policies provided a permanent tailwind. However, the lower-for-longer environment created global uncertainty, which we expect to sporadically, rather than permanently, cause higher market volatility going forward.
With monetary policy overburdened on a global scale it is only a question of time until an off-loading is no longer just hypothetical but finally becomes a reality, meaning fiscal policy will then come to the fore.
We think this new phase – coupled with political uncertainties around the Trump administration in the US and the forthcoming elections in some key European countries, together with the many unresolved geopolitical conflicts, including the global migration crisis – will be characterized by sudden manifestations of tail risk and eruptions of higher volatility. In our view this will bring a shift towards portfolio manager skills (alpha) playing a much greater role in generating returns.
Modern sustainable investing, also referred to as responsible investment, is much more than a process to screen out objectionable investments. It can also be a means of creating superior returns. Our holistic approach to sustainable investing starts with the valuation of tangible financial data and models discounted cash flows to arrive at a security's intrinsic value.
This is combined with our proprietary measurement and analysis of intangible assets and non-financial information, such as sustainability data, energy efficiency initiatives and supply chain risks. We believe that this combination of traditional valuation disciplines with sustainability analysis enhances the possibilities for value-added returns.
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